WAJID AKRAM, (ACCOUNT ANT MEMBER).--- Titled appeals have been preferred at the instance of department directed against the consolidated order dated Nos.31 and 32 dated 23.11.2005, passed by the learned CIR(A), Lahore, pertaining to assessment years 1995-96 and 1996-97.
2. Brief facts of the case are that the original assessments for the years under consideration were finalized under section 62 of the (repealed) Income Tax Ordinance, 1979. Later the same were modified under section 66A of the said Ordinance on 15.05.1999 by making an addition on account of income credited to suspense account. The order was, however , again revised under section 66A on 13.06.2000 by making addition on account of lease rentals and the incomes of the assessee bank for the two years were computed as under:-- 1995-96 1996-97 Income originally assessed under section 62Rs. 1,509,157,246/- Rs.
1,623,686,345/- Income modified under section 66A by order dated 15.05.199Rs. 102,135,000/- Rs. 55, 000,000/- Income modified under section 66A by order dated 13.06.2000Rs. 100,302,137/- Rs. 106,536,666/- Total income assessed under section 66ARs, 1,71 1,594,383/- Rs.
1,785,223,01 1/-
3. The assessee bank being aggrieved with the order above, filed appeal before the Tribunal who vide order dated 12.08.2002 has set-aside the assessments with the following directions:-- "In the circumstances, we consider it appropriate to set aside the, two orders with the directions to provide an opportunity to the appellant bank to provide details of actual lease rentals received and with further direction, to the learned IACIT to allow tax depreciation legally admissible under the Third Schedule of the Income Tax Ordinance, 1979."
In consequence of the order of the Tribunal dated 12.08.2002, the assessing officer, after obtaining the reply of assessee, passed the assessment order dated 25.06.2004. The assessee bank being dissatisfied with the order of the assessing officer filed appeal before the CIR(A), who rejected the appeal of the assessee on the issue of taxing income from leasing on accrual basis instead of on receipt basis whereas on all remaining issues, the appeal of the assessee bank was accepted vide order dated 15.11.2005. The department being dissatisfied with the order of the CIR(A) has come up in appeal before the Tribunal on the following grounds: Assessment Year 1995-96:
1. THA T the order of the learned CIT(Appeals), Zone-I, Lahore is bad in law and against the facts of the case.
2. THAT the learned CIT(A) was not justified in deleting the addition of penal interest on account of late payment, without any cogent reason.
3. THAT the learned CIR(A) was not justified in deleting to recomputed the total income, without any valid reason.
4. THAT the learned CIT(A) was not justified in allowing depreciation allowance against gross leasing rental Income, without any cogent reason.
5. THAT the learned CIT(A) was not justified in deleting the disallowance of depreciation at Rs.23,064,189/-, without any cogent reason.
Assessment Year 1996-1997: THAT the order of the learned CIT(A), Zone-I, Lahore is bad in law and against the facts of the case:
2. THAT the learned CIT(A) was not justified in deleting the addition of penal interest on account of late payment, without any cogent reason.
3. THAT the learned CIT(A) was not justified in allowing depreciation allowance against gross leasing rental income, without any cogent reason.
4. The DR on behalf of department contended that CIR(A)" was not justified in deleting the addition of penal interest on account of late payment as well as allowing the deprecation allowance against gross leasing rental income, without any cogent reason for the two years.
Whereas for the year 1995-96 the CIR(A) was not justified in directing to re-compute the total income and in deleting the disallowance of depreciation at Rs.23,064,189/-, without any cogent reason, however no valid argument in this regard can be submitted especially as regard the two objections pertaining to assessment year 1995-96 which constitutes points of fact as apparent from the comparison of two assessment orders passed for assessment year 1995-96 on 15.06.1996 and the impugned order dated 25.06.2014. The AR of the assessee bank supported the order of the CIR(A) with detailed submission and relevant case-laws.
5. We have given due consideration to the arguments advanced by both the parties and perused the relevant available record, As regards the issue regarding penal interest on late payments it is observed the Inspecting Additional Commissioner (IAC) examined, the account and worked out delayed lease rental at his own by taking difference of lease rental receivable and lease rental actually received and calculated penal interest @ 24% per annum thereon and included the same in the income for the year. It was argued by tile taxpayer before learned CIR(A) that in case of delayed payments, the bank record penal interest in other income wherever charged, and Offer it in the lease rentals. The learned CIR(A) observed that in addition to voluntarily offering penal interest as income of the bank, the assessing officer could not himself determine the late payment recovery which is outside the powers of the assessing officer. It is only the assessee who is running the business to commercially decide and determine the amount of late payment penalty or additional payment. The assessing officer cannot at his own determine late payment amount and record the same as income of the assessee. The learned CIR(A) has accepted the appeal. of the assessee in the light of judgments reported as (1960) 2 TAX (III-130), 31 ITR 153, 48 ITR 548 and 194 ITR 695. We agree with the findings of the CIR(A) that it is assessee who is running the business hence it is the assessee to decide and charge the amount of late payment penalt y against its clients at whatever amount it commercially decides to do. In these circumstances the action of Ad. CIR is not justified hence the appeal of the department fails on this score.
6. As regards the contentions of the DR that CIR(A) was not justified in allowing deprecation allowance against gross leasing rental income, without any cogent reason for assessment years 1995-96 and 1996-97, it is observed that according to section 23(1)(v) of repealed Ordinance, depreciation against lease assets is allowable against lease rentals only. The bank claimed depreciation against gross lease rentals whereas the IAC restricted the same to the extent of NET lease rentals (after allocation of proportionate expenses). The learned CIR(A) directed to allow deprecation to the extent of gross lease rental instead of net lease rentals by following the decision of Hon'ble Sindh High Court in CIT v. Faysal Islamic Bank of Bahrain, Karachi 2001 PTD 682. It has been informed to the court that issue has attained finality as department has not contested this decision before Hon'ble Supreme Court of Pakistan. The CIR(A) has accepted the appeal of the assessee bank in accordance with law and we do not find any legal or factual infirmity in it. The departmental appeal fails on this score.
7. As regards the appeals of department on account of re-computation of income (double taxation of lease income, of Rs.24,072,513/-) and deletion of disallowance depreciation at Rs.23,064,189/- for assessment year 1995-96 it is observed that in the original order under sections 62/62B of the repealed Income Tax Ordinance, 1979 dated 15.06.1996, income, was assessed at income of Rs.1,509,157,246/- this amount included the additions of Rs.24,072,513/- on account of income from leasing and Rs.23,064,189/- on accou nt depreciation as evident from page No.11 of said order . In appeal before the Tribunal, the Tribunal set-aside (remanded) the issue of lease income and the IAC while passing the impugned order , recomputed lease income and depreciation and made there additions in already assessed income of Rs.1,509,157,246/- without realizing that lease income to the extent of Rs.24,072,513/- and disallowance of deprecation on lease assets to the extent of Rs.23,064,189/- were already part of income of Rs.1,509,157,246/-. The learned CIR(A) allowed relief by observing that lease income to the extent of Rs.24,072,513/- and depreciation of lease assets to the extent of Rs.23,064,189/- have doubly been taxed. The factual position noticed by the CIR(A) is apparent from record. No legal or factual infirmity in this regard has been observed in the order of the CIR(A) therefore the departmental appeals fails on the points of re- computation of income Rs.24,072,513/- deletion of disallowance of deprecation at Rs.23,064,189/-. The order of CIR(A) is upheld on both the issues.